Who owns Huawei? The company says its staff, but a new study says not

April 30, 2019

Huawei is probably the GBA’s most successful company. It is also one of China’s most contentious brands overseas, with warnings from its opponents that it might serve as snooper-in-chief for the Chinese government. That made for more debate this month about who owns the telecoms giant – its staff or the state?

Huawei’s origins are mysterious, with longstanding rumours of a relationship with the Chinese military (its founder Ren Zhengfei had a former career as an army engineer).

Huawei has always denied links to the army or the Chinese state, arguing that it is owned by its employees.

The question resurfaced in a study this month by two professors from the Fulbright University Vietnam and George Washington University Law School. Although they didn’t come to a definitive conclusion, their summary was that “regardless of who, in a practical sense, owns and controls Huawei, it is clear that the employees do not.”

Huawei disagreed, firing back a few days later that about half of its 180,000 staff own 99% of the company’s stock through ‘virtual restricted shares’. These employees get dividends from their holdings, it said, but their voting rights are consolidated into a “trade union committee” because Chinese law does not allow such a large number of investors.

The arrangements won’t do much to refute rumours that Huawei ultimately answers to the government because every union in China is under the supervision of the All-China Federation of Trade Unions – a Communist Party body.

The study’s authors also described the shareholding structure as more of a profit-sharing scheme than actual ownership, prompting another rebuttal from Huawei that the employees do have voting powers because they have a say in a “representatives’ commission” which votes for the board of directors, the body that makes operational decisions.

The counterargument from the critics is that Ren Zhengfei seems to have a right of veto in both bodies, which would undermine the claim to the shareholders’ majority vote.

Debate like this is getting more strident as Western governments grow warier about contracting Huawei’s services. That sensitivity was laid bare again last week when the British said they would allow Huawei to bid for contracts in ‘non-core’ parts of their telecoms infrastructure. Washington is furious, warning that a deal could jeopardise its intelligence relationship with the UK.

National governments began to pay closer attention to Huawei’s loyalties when China introduced new legislation in 2015 requiring enterprises “to maintain national security”. New laws the following year demanded that network operators like Huawei provide “technical support and assistance” in matters pertaining to national security as well.

The language is vague but some countries have taken it to mean that all of China’s companies must obey the orders of their government when push comes to shove. That didn’t matter so much when Chinese enterprises had less of an international presence but it is much more of an issue as they grow their footprint overseas.

What’s often less appreciated is that Communist Party committees are fixtures at the larger firms as well, tasked with approving key decisions before they are put to company boards. In the past their role has often been more symbolic but they have regained some of their voice in policing corruption since Xi Jinping took office and in making sure that the state’s interests are respected.

Chinese business bosses have learned to live with these committees (the advice from Jack Ma, the Alibaba founder, is that companies should “be in love with them but don’t marry them”), although these kinds of overlaps make it harder to draw a definitive line between the Chinese government and the country’s biggest firms. And whether it’s love or marriage, Western governments may not draw much of a distinction as Chinese companies clamour for contracts in sensitive parts of their economies.

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